In a speech to the Yukon Chamber of Commerce, Bank of Canada (BoC) Governor Poloz gave a progress report on the economy since the bank’s last forecast in April.

He reviewed the outlook in light of key risks the Bank had identified earlier, as well as the impact of the wildfires in Alberta that led to the evacuation of Fort McMurray and affected oil sands production. According to him, The Canadian economy is making progress in adjusting to low oil price and recovering from the global financial crisis. He said strengths can be seen in non-energy exports sector as past depreciation of Canadian dollar provides support.

However, there is one factor that may pour cold water over the optimism and that is Canadian inflation, which has remained volatile and high compared to other developed markets.

Let’s review the CPI, for which data will again be released today around 12:30 GMT.

Past trends –

  • After reaching 0.8 percent y/y in April 2015, inflation has been rising and reached 2 percent in January this year. It has been very volatile lately. Nevertheless, they are in the target range of Bank of Canada (BoC). Core CPI has averaged above 2 percent since mid-2014. Consumer prices are proving to be quite sticky in Canada.

After weakening to as low as 1.47 per dollar, the Canadian dollar has strengthened and currently trading just below 1.3 handle, which basically means Loonie isn’t providing that much support to non-energy sector anymore. Now higher inflation means BoC will have to sit tight and do nothing and leave loonie at the mercy of dollar and oil.

The material has been provided by InstaForex Company – www.instaforex.com